3Q U.S. Worker Productivity Surges-- Strongest Since 2003

The U.S. labor market is clearly signaling that the recession is over. The magnitude of the 9.5% jump in nonfarm worker productivity during 3Q'09 wasn't unprecedented for this early in a recovery. Its size is noteworthy because the rise in output was moderate. The 3Q gain in productivity followed a similarly firm 6.9% 2Q rise which was little-revised. It was the strongest since 3Q'03 and outpaced Consensus expectations for a 6.4% increase.

The gain in productivity occurred as output posted its first increase in over a year. The moderate 4.0% rise was accompanied by a continuation of the sharp decline in hours-worked (employment times hours), which has been so much a part of this recession. The 5.0% (-7.5% y/y) decline in hours-worked followed a 7.5% 2Q drop.

Compensation costs, however, improved with the gain in output per hour. The 3.8% quarterly increase was the first gain in a year though it left costs up just 0.5% y/y. That gain was nearly the weakest since 1949.

The surge in productivity combined with a moderate increase in compensation combined to further drop unit labor costs. The 5.2% q/q decline was the third consecutive quarterly fall and it lowered the y/y change to -3.6%, the sharpest since early-1950.

Surging worker productivity growth in the factory sector led the overall gain in output-per-hour. The 13.6% (AR) quarterly increase was a record and it lifted y/y growth to 3.1%, the highest since early last year. The increase came as output rose at a 7.7% rate (-10.8% y/y) and hours worked fell at a 5.2% rate (-13.5% y/y). Compensation rose 5.5% (5.5% y/y), therefore unit labor costs in the factory sector fell at a 7.1% annual rate (+2.3% y/y).

The productivity & cost figures are available in Haver's USECON database.

The Labor Department indicated that initial claims for unemployment insurance fell moderately to 512,000 last week from a little-revised 532,000. The latest figure represented material labor market improvement since it was the lowest since the first week of January. Moreover, claims have fallen sharply from the peak reached in March of 674,000 claims. The four-week moving average of claims fell to 523,750 and the latest weekly figure was lower than Consensus expectations for 520,000 claims.

Continuing claims for unemployment insurance during the latest week fell 68,000 to their lowest level since late-March. The decline reflects the improved job market but may also be a function of the exhaustion of benefits. Continuing claims provide an indication of workers' ability to find employment. The four-week average of continuing claims fell modestly to 5,886,250 and have fallen 13.0% from their peak. This series dates back to 1966.

Extended benefits for unemployment insurance rose moderately and reversed half of the prior week's decline. Through early-October extended benefits averaged 551,355.

The insured rate of unemployment held steady at 4.4% and matched its lowest since late-March. The rate reached a high of 5.2% during late-June. During the last ten years, there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.

The highest insured unemployment rates in the week ending October 17 were in Puerto Rico (6.4%), Nevada (5.4), Oregon (5.4), California (4.9), Pennsylvania (4.9), Arkansas (4.8), Wisconsin (4.8), Michigan (4.7), Alaska (4.6), North Carolina (4.6), and South Carolina (4.6). The lowest insured unemployment rates were in North Dakota (1.0%), South Dakota (1.1), Virginia (2.0), Wyoming (2.8), Maine (2.5), Texas (2.5), Colorado (3.0), Maryland (3.0), Mississippi (3.6), New York (3.5), Florida (3.7), and Georgia (3.8).

The unemployment insurance claims data is available in Haver's WEEKLY database and the state data is in the REGIONW database.

Asia Recovering Rapidly, but Faces Challenges, says IMF from the International Monetary Fund can be found here 

Retail sales fell again in September in the e-Zone. Retail sales and vehicle registrations are on nearly opposite paths. Sales are still falling while vehicle registrations bolstered by an assortment of government programs have been spurred higher. All this stirs the pot of controversy since in the EU Commission indices that describe the various EMU sectors, consumer confidence and retailing tend to show the highest relative scores. Based on the EU surveys it would seem that consumer attitudes and retailing are leading EMU ahead, yet in terms of the hard data on spending that matter most that does not seem to be true.

Partly this divergence is a question of looking at levels of Vs changes. The levels of satisfaction assessed for the consumer and retailing sector surveys by the EU Commission are high relative to other sectors (though still low in absolute terms). For MFG and even services the relative levels of the indices compared to normal times are extremely low, but theses sectors had fallen hard in recession and are now rising, or rising strongly as is the case with MFG and despite their low ratings they are boosting growth the most.

So far European recovery seems to have come on the back of the industrial sector with rising output and orders but from an extremely low level. But with the euro currency also rising in value Vs other currencies, much of this demand seems to have been foreign-sourced thus questioning how far Europe can go without participation from its own consumers. The string of declines in retail sales raises that question again. It may be that the auto incentive schemes have diverted some spending from retail sales. But the European recovery cannot be based simply on selling autos and exporting. We continue to look for life in retailing to give optimism to the view of a sustained euro-recovery.